Tax proposals for Private Corporations – what the CBA is doing

September 08, 2017

The federal government has proposed a number of changes to income tax laws to make good on its promise of closing loopholes for the rich, the latest of which could have a significant – and negative – impact on several members of the legal profession.

The July 2017 proposals would dramatically change the way private corporations are taxed. The proposals would restrict some income splitting with family members, limit passive investments in the business, making it more vulnerable in bad economic times, and change the capital gains rules which could make it more difficult for business owners to transfer their business to the next generation.

The CBA is responding to the proposals on several fronts. First, it has teamed up with a coalition of more than 50 organizations collectively representing hundreds of thousands of independent businesses, professionals and taxpayers who would be adversely affected by the proposed changes – people ranging from farmers to small business owners, to medical and legal professionals.

Second, it has launched a letter-writing campaign. Members can voice their opinions by going to the CBA website and using the tools there to find their local Member of Parliament, compose a customized letter – or write their own. The letters will be sent electronically to the MP and to Finance Minister Bill Morneau. Engaging this way with your local MP is the best way to have your voice heard and effect change.

On Aug. 30, the coalition wrote to Finance Minister Bill Morneau laying out its case against the proposal as it stands, and offering to help the government to come to a fair resolution.

“These are not minor amendments, but are sweeping changes that will affect all sectors of Canada’s business community and we ask that you not move forward with these proposals,” says the letter, signed by the 42 coalition members. “Instead, the organizations listed below stand ready to meet with you and your officials to offer our support and ideas for measures to address any shortcomings in tax policy affecting private corporations.”

The coalition says its members feel “unfairly targeted” and labelled as “tax cheats” by the federal government for using tax law as it was intended.

“Should there be worrisome abuses of the current tax system, we stand ready to work with the federal government to pursue ways to tighten rules. The current proposals are not the solution and are instead creating unnecessary uncertainty for business owners,” the letter says.

CBA President Kerry L. Simmons, Q.C., encourages CBA members to write to their MPs about the impact of the changes, using the easy tools at your disposal. “The government is characterizing professionals as tax cheats and the current law as loopholes, but nothing could be further from the truth,” she said. “We are relying on legitimate tax measures that let us plan for unexpected bumps in the road.”

Earlier this year, the federal government proposed bringing an end to billed-basis accounting, which permits lawyers to pay tax only when they are actually paid by the client. The government has clarified that the new rules will not affect contingency fee arrangements, but the CBA continues to ask for other changes to make the law fair. As of this writing we are waiting to see if the measure will be included in the second budget implementation bill, expected this fall.

Stay tuned for updates on both of these matters. Also keep an eye on Twitter, where we and other members of the coalition will be using the hashtag #unfairtaxchanges, and on the CBA website and other social media channels.